Rev. Rul. 58-445

Advice has been requested whether the exemption from manufacturers excise tax provided by section 4220 of the Internal Revenue Code of 1954, insofar as radio and television components are concerned, applies to sales of certain automatic record changers under the circumstances described below.

A company manufactures automatic record changers, each of which includes, among other components, a motor, a turntable, and a pick-up arm. Some of the changers are sold to phonograph manufacturers who incorporate them into phonographs of their own manufacture. Other changers are sold directly to dealers who resell them as components to consumers. The consumers connect the changers to other components to form complete radio-television-phonograph systems.

Section 4141 of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of certain articles, including radio and television components. Section 4142 of the Code defines the term `radio and television components' to include phonograph mechanisms which are suitable for use on or in connection with, or as component parts of any of the articles enumerated in section 4141 of the Code, whether or not primarily adapted for such use. The automatic record changers in the instant case are taxable phonograph mechanisms within the meaning of Revenue Ruling 55-624, C.B. 1955-2, 456, which holds that a combination which includes a motor, a turntable, and a pick-up arm is a phonograph mechanism as contemplated by section 4142 of the Code.

Section 4220(2) of the Code provides that no manufacturers excise tax shall be imposed with respect to the sale of radio and television components (A) for use by the vendee as material in the manufacture or production of, or as a component part of, any article, or (B) for resale by the vendee for such use by his vendee, if such article is in due course so resold.

Under the provisions of section 4220(2), the automatic record changers described above may be sold tax free to the phonograph manufacturers for use by them as material in the manufacture of phonographs or any other article. However, it is held that such record changers may not be sold tax free, under section 4220(2), to dealers for resale as such to consumers for their use as components in radio-television-phonograph systems.